Canadian stocks bolstered by GDP

SusanLerner

TORONTO (CBS.MW) - Wall Street gains faded away by day's end but Canadian stocks closed the first half out on a positive note Friday as a better than expected gross domestic product reading boosted shares ahead of a long holiday weekend.

April's 0.8 percent surge in gross domestic product (GDP) marked the single largest monthly gain since early 2000, according to Statistics Canada. All manufacturing sectors registered gains, the agency said, attributing the widespread strength to higher sales of cars and trucks, the temporary elimination of softwood lumber duties, and accelerated production of motor vehicles and parts and wood products.

Significant gains were posted by makers of primary and fabricated metal products, plastic and rubber products and food and beverages, resulting in higher levels of demand for energy, transportation and wholesaling services, Statscan added.

The bullish data along with a weaker U.S. currency propelled the Canadian dollar to a 17 month high Friday but closed off those highs at 65.95 cents versus the greenback.

"While the loonie may be overbought near-term, the fundamentals that have led to the 7 percent rally off the all-time lows sow no signs of reversing," said Merrill Lynch economist David Rosenberg. "The Canadian dollar remains undervalued and is poised for further gains in an environment of widening overnight spreads, rising commodity prices and improving global growth."

In the equity markets, the S&P/TSX Composite Index (SPTSX) made it two in a row, finishing the day better by 71.80 points, or 1 percent, at 7,145.61, marking only the third day of gains for the benchmark index in June. For the month, the index lost 3.1 percent, leaving it down 8.1 percent for the first half. Still, the S&P/TSX remains up 9.6 percent from its post September lows.

Meanwhile, the Nasdaq Canada Index of Canadian stocks trading in the U.S. ended the day up 0.7 percent, the S&P/TSX 60 Index of blue chips gained 1.2 percent and the S&P/TSX Venture Composite Index of small cap stocks eked out a 0.01 percent gain.

Eight of the TSE's 10 sector gauges finished the day solidly higher with only utilities and healthcare moving lower.

Even materials was on the plus side despite another decline in gold stocks as base metals stocks moved higher after Alcan reaffirmed its second quarter outlook. In the precious metals group, the S&P/TSX Canadian Gold Index fell 2.9 percent amid a fall in gold futures. Gold for August delivery settled down $5.70 at $313.90 an ounce on the New York Mercantile Exchange.

The aluminum producer (AL) said operating earnings for the quarter (excluding non-recurring items and foreign currency balance sheet translation effects) are expected to be at the upper end of its previously disclosed range of 35 to 45 cents per share.

Still, while the LME price has remained relatively stable during the second quarter, Alcan said the recent strengthening of the Canadian dollar is expected to have a "significant" negative impact on the quarter.

The company also detailed changes in its accounting for goodwill and said it will record an impairment charge of $748 million reflecting the decline in end-market conditions in the period from the algroup merger in October 2000 to January 1, 2002. The adjustment was not expected to affect the company's future growth.

Alcan shares jumped C$2.54, or 4.6 percent, to C$57.70, while others in the sector such as Falconbridge and Inco also rose. Falconbridge shares (FL) moved up 3.9 percent to C$19.90 and Inco (N) added 2.4 percent to C$34.15.

In other news, BCE answered lingering questions in the market, revealing it will buy back the 20 percent interest in Bell Canada from SBC Communications for C$6.32 billion.

"BCE can finance the repurchase while maintaining the financial strength of our balance sheet and the integrity of our capital structure," said Michael Sabia, president and chief executive officer of BCE. "Most importantly, we will complete the repurchase within our 2002 financial guidance while maintaining our current dividend."

Under the agreement, BCE will purchase about 4 percent for C$1.33 on June 28 and BCE will exercise its right to purchase the remaining approximately 16 percent valued at C$4.99 billion, on or before January 3, 2003, at BCE's discretion for consideration that may include notes, cash and up to $250 million of BCE common stock.

SBC will acquire, by way of private placement, $250 million of BCE common equity on July 15, 2002, and BCE will purchase, at face value, on or before Dec. 31, 2004, C$314 million of inter-company notes previously purchased by SBC as part of the privatization of Bell Mobility.

A subsidiary of Ameritech Corporation, now owned by SBC Communications, had purchased a 20 percent interest in Bell Canada in June 1999, for C$5.1 billion.

In the biotech sector, QLT Inc. (QLT) rose to an intrada high of $20.25 before closing unchanged at C$19.60 after announcing that it has begun patient enrollment for two phase III clinical trials using tariquidar as an adjunctive treatment in combination with first-line chemotherapy for non-small cell lung cancer patients.

Tariquidar was in-licensed from Xenova
XNVA
for the development and marketing rights in North America in August 2001. The trials are designed to demonstrate the ability of tariquidar to enhance the efficacy of chemotherapy agents. Xenova shares jumped 15 percent to $7.74.

And finally, Nova Chemicals announced plans to restructure its styrenics business including expansion of its ARCEL production, streamline its dylark manufacturing process at Beaver Valley, and shut down the solid polystyrene suspension reactors at its facility in Breda, The Netherlands, and in Chesapeake, Va.

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